WEBVTT - Bloomberg Surveillance TV: June 17, 2024 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.920 Terminal and the Bloomberg Business App. A slower FED. 0:00:36.800 --> 0:00:39.680 Speak on tap. This week we'll hear from Williams, Harker 0:00:39.720 --> 0:00:42.520 and Cook today. There are six more speakers tomorrow, plus 0:00:42.560 --> 0:00:45.920 retail sales data. On Thursday, more Fed Speak, plus housing 0:00:45.960 --> 0:00:49.519 starts and jobless claims. Neila Richardson of ADP writing this, 0:00:50.200 --> 0:00:54.120 jobs aren't everything. Labor market data has been decent news, 0:00:54.120 --> 0:00:56.040 but as a federal Reserve takes a wait and see 0:00:56.040 --> 0:01:00.160 approach on interest rates, we see big changes afoot on 0:01:00.240 --> 0:01:02.920 pay Neila joining us now and Neila, what I love 0:01:03.000 --> 0:01:05.479 is you can dig beneath the data at a time 0:01:05.640 --> 0:01:08.240 when it has been so confusing. Can you give us 0:01:08.240 --> 0:01:10.640 a sense of just sort of the sea changes under 0:01:10.640 --> 0:01:14.199 the hood that might be warping some of the overall 0:01:14.240 --> 0:01:15.480 index levels. 0:01:15.120 --> 0:01:15.840 That we're tracking. 0:01:16.040 --> 0:01:18.399 Sure, well, good morning, it's great to be with you 0:01:18.520 --> 0:01:21.640 all today. I think what's interesting about this moment is 0:01:21.680 --> 0:01:24.800 that this is the most PopEd and proddugt economy that 0:01:24.880 --> 0:01:28.600 I've ever seen. Every data point seems live and important. 0:01:28.160 --> 0:01:29.479 But it's not. 0:01:29.800 --> 0:01:32.440 It's sometimes like a caffey and what we're looking at 0:01:32.520 --> 0:01:35.160 at ADP we're going through to what we think is 0:01:35.200 --> 0:01:38.800 most important in the sea economy, which is how companies 0:01:38.880 --> 0:01:43.880 hire and what they pay, and that has changed significantly 0:01:44.000 --> 0:01:47.520 over the last four years. We've seen shifts in geographic 0:01:47.600 --> 0:01:52.160 distributions of people are commuting long distances. That has an 0:01:52.160 --> 0:01:54.840 effect on pay. In fact, we find in our latest 0:01:54.880 --> 0:01:58.440 reports out today that people who actually go the distance 0:01:58.480 --> 0:02:03.800 for employment make sixteen percent more than people on their 0:02:03.840 --> 0:02:09.239 own teams. So that's a huge change and it's under examined. 0:02:09.280 --> 0:02:13.240 In this market. We're seeing pay distribution change. The gaps 0:02:13.280 --> 0:02:17.960 between the wealthiest workers and the lowest paid workers has 0:02:18.120 --> 0:02:21.760 grown by our estimate five percentage points over the last 0:02:21.800 --> 0:02:26.679 four years. We're seeing occupational changes, We're software developers, which 0:02:26.680 --> 0:02:27.440 should be an. 0:02:27.360 --> 0:02:28.240 End demand job. 0:02:28.360 --> 0:02:31.280 With all of this talk about AI, there are fewer 0:02:31.320 --> 0:02:35.120 selfware developers now than in twenty eighteen. And then of 0:02:35.160 --> 0:02:37.280 course for all of us who have teenagers, some are 0:02:37.360 --> 0:02:41.880 hiring is in focus. The summer looks strong in terms 0:02:41.919 --> 0:02:44.480 of jobs, but not so strong in terms of pay 0:02:44.800 --> 0:02:47.680 for these young people. So all of these shifts feed 0:02:47.720 --> 0:02:51.480 into the narrative, and the distribution of the worker not 0:02:51.880 --> 0:02:53.040 something we talk about a lot. 0:02:53.200 --> 0:02:54.720 And I guess that's part of the reason why the 0:02:54.800 --> 0:02:57.720 data has been confusing, because there are these structural shifts 0:02:57.720 --> 0:03:00.880 that doesn't necessarily show itself on a headline level. So 0:03:00.919 --> 0:03:02.920 what do we do with the data? Then? Should we 0:03:02.960 --> 0:03:04.960 just ignore it? Should we discount it? Because things are 0:03:05.000 --> 0:03:07.840 different and what it's telling us isn't really what's happening 0:03:07.880 --> 0:03:08.600 under the surface. 0:03:09.400 --> 0:03:12.239 We can't discount it because we know that a certain 0:03:12.400 --> 0:03:16.200 really important institution is pegging a certain really important decision 0:03:16.600 --> 0:03:20.680 on the cancophany of data points. But that one move 0:03:21.080 --> 0:03:24.840 won't shape the economy. Whether you lower interest rates by 0:03:24.919 --> 0:03:31.120 one down one dip this year twenty five basis points 0:03:31.200 --> 0:03:34.520 or two or three really won't change the distribution of 0:03:34.560 --> 0:03:37.560 the US workforce, which has shifted. And I think that's 0:03:37.600 --> 0:03:40.640 what we're seeing in the data that pay change. This 0:03:41.080 --> 0:03:45.200 low level of wage growth that was really keeping the 0:03:45.280 --> 0:03:49.640 economy on track during the ten years of expansion is 0:03:49.720 --> 0:03:54.080 not here now that pay is changing, it's evolving, and 0:03:54.120 --> 0:03:57.560 that involvement in pay means that inflation may go up, 0:03:57.800 --> 0:04:00.960 may be higher for longer, and the Fed always has 0:04:01.080 --> 0:04:03.839 to be watchful on the stata point and on pay. 0:04:03.840 --> 0:04:04.520 In particular. 0:04:04.640 --> 0:04:07.080 Consumer sentiment did not look good on Friday, and the 0:04:07.120 --> 0:04:09.160 director of the survey had this to say, the views 0:04:09.160 --> 0:04:12.560 of middle income consumers resemble those of their lower income counterparts, 0:04:12.560 --> 0:04:15.200 a departure from historical patterns in which their mentions are 0:04:15.200 --> 0:04:18.200 squarely between those of higher and lower income consumers. So 0:04:18.240 --> 0:04:21.160 what are you saying that the wage gage gains are 0:04:21.320 --> 0:04:25.640 not on par with the inflation that middle and lower 0:04:25.640 --> 0:04:27.120 income individuals are feeling. 0:04:27.600 --> 0:04:30.800 You know, what they're seeing is price levels, and they're 0:04:30.839 --> 0:04:33.880 looking at, yes, their paychecks, but they're looking at what's 0:04:33.920 --> 0:04:36.640 in their basket at the grocery store. And as long 0:04:36.680 --> 0:04:40.360 as there's a disconnect between how much their take home 0:04:40.400 --> 0:04:44.360 pay has grown and how much their basket has shrunk, 0:04:44.760 --> 0:04:46.760 they're always going to be a little moody. Now we've 0:04:46.800 --> 0:04:49.599 seen that a moody bad vibes on the consumer side 0:04:49.720 --> 0:04:53.640 does not necessarily translate to lower retail spending. That's going 0:04:53.720 --> 0:04:57.799 to be something to watch this week. Last April, retail 0:04:57.839 --> 0:05:01.480 spending was flat. Those vibes have prepped in how long, 0:05:01.640 --> 0:05:04.640 how permanent they are, whether they affect spending is going 0:05:04.680 --> 0:05:08.200 to be really important. We've seen some resilience in the consumer. 0:05:08.440 --> 0:05:11.279 I would argue from the high end consumer. They have 0:05:11.360 --> 0:05:14.919 been carrying this economy. So it's a really interesting situation 0:05:15.480 --> 0:05:17.719 that we're seeing in the pay When you take the 0:05:17.760 --> 0:05:20.520 pay and the retail side together, what you're seeing is 0:05:20.560 --> 0:05:24.480 that firms are raising prices because they have to increase 0:05:24.520 --> 0:05:27.920 pay from all those double digit pay gains safety and 0:05:28.000 --> 0:05:32.040 from low paid workers. But the people who've actually benefited 0:05:32.040 --> 0:05:35.599 the most are high earners from asset prices, from higher 0:05:35.640 --> 0:05:39.960 wage games. And so you have this like combination, this cohabitation. 0:05:40.760 --> 0:05:46.280 I'm trying to crush it between high spending high earners 0:05:46.640 --> 0:05:49.920 and low income workers who are seeing high pay growth 0:05:50.080 --> 0:05:52.440 but not able to spend at the same rates because 0:05:52.440 --> 0:05:53.560 of higher price levels. 0:05:53.600 --> 0:05:55.960 I'm glad that you brought that up very that survey 0:05:56.120 --> 0:05:58.320 that came out and the commentary from what we got 0:05:58.320 --> 0:06:01.040 from the University of Michigan survey, it kind of raised 0:06:01.080 --> 0:06:04.359 alarm bells for me because it's atypical. Usually what you 0:06:04.440 --> 0:06:07.320 see is that middle income workers kind of are in 0:06:07.360 --> 0:06:10.400 the middle when it comes to how they feel relative 0:06:10.440 --> 0:06:12.320 to the high end and the low end. They're not 0:06:12.440 --> 0:06:14.680 this time. They're shifting to the low end, and it 0:06:14.800 --> 0:06:16.840 raises this question. It's been the big question for a 0:06:16.880 --> 0:06:19.040 lot of people. Are we seeing the beginning of a 0:06:19.080 --> 0:06:22.279 shift downward that's going to be a more protractive, protracted 0:06:22.320 --> 0:06:25.760 weakening in the labor market. Are you seeing that? Is 0:06:25.800 --> 0:06:28.760 this a problem for you? That whatever it is, you 0:06:28.800 --> 0:06:32.359 can't reject people's feelings on mass and so there's something 0:06:32.400 --> 0:06:35.760 going on that's going to potentially have a significant impact 0:06:35.760 --> 0:06:36.560 on the economy. 0:06:36.839 --> 0:06:40.640 Feelings do translate into behavior. That's why we measure them, 0:06:40.680 --> 0:06:44.600 That's why they're important. And if you're seeing a diffusion 0:06:45.040 --> 0:06:49.880 of bad vibes, I'm wayful that bad vibes through the 0:06:49.920 --> 0:06:53.120 income distribution. It doesn't spell good news for the economy. 0:06:53.320 --> 0:06:55.320 When I hear what I hear from main Street is 0:06:55.360 --> 0:06:59.000 I'm delaying, I'm being like the Fed to watch the 0:06:59.120 --> 0:07:01.359 watch before I take on that new lease of my 0:07:01.400 --> 0:07:04.080 new car. I'm going to watch before I buy that 0:07:04.200 --> 0:07:07.920 investment property, that rental property. So that waiting watching has 0:07:07.960 --> 0:07:10.320 an effect on the economy. So even if you can 0:07:10.360 --> 0:07:12.600 afford to spend, you may not do it this quarter 0:07:12.760 --> 0:07:13.640 because you're waiting. 0:07:13.760 --> 0:07:16.000 So this is sort of the diversions between the bulls 0:07:16.000 --> 0:07:18.360 and the bears. Some people I'm thinking of Andrew Hall 0:07:18.400 --> 0:07:21.160 and Horns out there is thinking this is the beginning 0:07:21.200 --> 0:07:22.560 of a real weakening that we're going to see in 0:07:22.560 --> 0:07:25.800 a labor market. Last week's climb and initial job, as claims, 0:07:25.880 --> 0:07:29.040 was a harbinger of a greater degree of weakening under 0:07:29.080 --> 0:07:29.440 the hood. 0:07:29.840 --> 0:07:33.920 Do you see that now? I think again that goes 0:07:33.960 --> 0:07:37.080 back to my comments about this economy being prodded a 0:07:37.080 --> 0:07:39.920 little bit. This is a normal economy. You're not going 0:07:39.960 --> 0:07:42.480 to make straight a's every quarter. You're going to have 0:07:42.560 --> 0:07:44.840 some weakness here and there. There's going to be weakness 0:07:44.840 --> 0:07:48.760 in pockets, but that doesn't mean that it's a persistence diffusion. 0:07:49.080 --> 0:07:51.720 What we're trying to figure out, and it's a hair 0:07:51.840 --> 0:07:55.680 trigger decision, is when the FED can feel comfortable cutting 0:07:55.720 --> 0:07:58.760 rates that doesn't mean the economy is bad because they 0:07:58.760 --> 0:08:01.800 start cutting it. I mean it's necessarily good because they 0:08:01.800 --> 0:08:03.920 start cutting it. I think what it means is that 0:08:03.960 --> 0:08:06.920 the FED as a whole collectively feels that they're a 0:08:06.920 --> 0:08:09.600 little more restrictive than they want to be in this 0:08:09.680 --> 0:08:11.960 particular normalizing economy. 0:08:12.000 --> 0:08:16.280 So feeling better about the vibe session maybe, But okay, 0:08:16.280 --> 0:08:18.000 one of this idea, I get not to harp on this, 0:08:18.080 --> 0:08:19.920 but this idea of all of a sudden everybody's feeling 0:08:19.920 --> 0:08:23.000 a lot worse in the middle income consumer too. Jim 0:08:23.000 --> 0:08:26.160 Bianco and looking at that UMich data basically looked at 0:08:26.200 --> 0:08:28.560 and said, there's been something strange happening with it. It's 0:08:28.560 --> 0:08:32.520 actually democratic opinion that has really turned. I wonder if 0:08:32.520 --> 0:08:34.400 you look at it and say the same thing. Maybe 0:08:34.440 --> 0:08:37.600 what's actually happening is that political bias, But it's this 0:08:37.720 --> 0:08:40.680 huge cohort saying maybe Trump is going to be elected, 0:08:40.760 --> 0:08:43.360 So it's still that political influence. But on the other 0:08:43.440 --> 0:08:46.200 side too. It's hard to tell. 0:08:46.280 --> 0:08:49.080 At the stage. We know that that MISS survey has 0:08:49.120 --> 0:08:52.840 had a methodological change too. It's gone online. We don't 0:08:52.840 --> 0:08:55.240 know if that changes the sample we've seen though for 0:08:55.360 --> 0:08:59.280 the past two months pretty downbeat sentiment. I'd be hesitant 0:08:59.320 --> 0:09:02.720 though then the changes that we've seen on the methodological 0:09:02.800 --> 0:09:07.440 end to put too much on the political differences right now. 0:09:07.760 --> 0:09:11.240 But we know that politics does affect opinion, does affect 0:09:11.360 --> 0:09:14.160 vibes on the economy, and we'll see and should track 0:09:14.520 --> 0:09:16.679 how that plays out over the course of the next 0:09:16.760 --> 0:09:17.640 six months. 0:09:17.320 --> 0:09:17.720 For sure. 0:09:17.840 --> 0:09:21.120 Neili Richardson of ADP and of Bloomberg Television contributor, thank 0:09:21.160 --> 0:09:23.080 you so much for being with us as always looking 0:09:23.120 --> 0:09:36.959 forward to next time. Sam stoveall of CFURI also looking 0:09:37.000 --> 0:09:39.840 closer at the tech trade, saying this, even those six 0:09:39.960 --> 0:09:44.240 sectors also advanced, The tech sector was the exclusive outperformer 0:09:44.320 --> 0:09:47.719 last week, causing one to wonder just how long this 0:09:47.760 --> 0:09:50.960 can keep? Can this jumbo jet keep flying on only 0:09:51.080 --> 0:09:53.520 one engine? Sam joins us now and Sam, I have 0:09:53.640 --> 0:09:55.520 to say this, in some ways is the quote of 0:09:55.520 --> 0:09:58.320 the morning to me, given the fact that this is 0:09:58.360 --> 0:10:02.880 the ultimate existential question. Is this US stock market ultimately 0:10:02.920 --> 0:10:06.160 incredibly vulnerable because of the dominance of the big tech 0:10:06.240 --> 0:10:09.160 names or is it incredibly resilient because of them? Is 0:10:09.200 --> 0:10:10.960 it a feature or is it a bug? What do 0:10:11.000 --> 0:10:11.360 you think? 0:10:12.360 --> 0:10:16.040 Well, Lisa, good morning, I think that it is resilient. However, 0:10:16.160 --> 0:10:18.480 I do believe that we are headed for a second 0:10:18.520 --> 0:10:23.200 decline of five percent or more in this year. Good 0:10:23.280 --> 0:10:26.840 news is, however, that based on my historical work, every 0:10:26.880 --> 0:10:29.840 one of those top fifteen first quarters ended up with 0:10:30.280 --> 0:10:33.000 a gain for the entire year, even though many of 0:10:33.040 --> 0:10:36.320 them went through two entry year declines of five percent 0:10:36.400 --> 0:10:40.640 or more, and those average annual increases exceeded twenty percent. 0:10:41.040 --> 0:10:43.200 But when I look to the S and P five hundred, 0:10:43.240 --> 0:10:47.239 I see it trading at a thirty two percent premium 0:10:47.400 --> 0:10:49.120 to its average twenty year pe. 0:10:49.520 --> 0:10:51.439 I look at TECH at a sixty. 0:10:51.120 --> 0:10:54.040 Eight percent premium, and I look at TECH at a 0:10:54.080 --> 0:10:58.440 twenty one percent premium on a relative pe basis, I 0:10:58.480 --> 0:11:00.720 do sort of wonder if we've jumped gone too far, 0:11:00.800 --> 0:11:04.040 too fast and need to reset the dials in order 0:11:04.080 --> 0:11:06.840 to maintain this longer term upward trajectory. 0:11:07.040 --> 0:11:09.520 So basically, you're saying that you think that TECH is 0:11:09.559 --> 0:11:11.760 going to pull back a bit as the rest of 0:11:11.800 --> 0:11:14.760 the index maybe just hovers around where it is now, 0:11:14.800 --> 0:11:18.000 and that's what's going to drive the index level five 0:11:18.040 --> 0:11:19.840 percent lower. Is that what I'm hearing from you? 0:11:20.960 --> 0:11:23.000 Well, I'm saying it's going to decline by at least 0:11:23.040 --> 0:11:23.679 five percent. 0:11:23.800 --> 0:11:26.640 Actually, history would say that we're probably going to experience 0:11:27.000 --> 0:11:30.680 a mild correction, So that forty eight hundred level on 0:11:30.720 --> 0:11:32.959 the S and P I don't think is out of 0:11:33.000 --> 0:11:36.520 the question at this point. I think that if we 0:11:36.559 --> 0:11:39.800 do start to see people take some profits in tech, 0:11:40.120 --> 0:11:42.760 it's not going to be just tech alone. Tech and 0:11:43.000 --> 0:11:47.600 consumer communications services are the only two sectors that are 0:11:47.640 --> 0:11:51.360 outperforming the S and P. Since we had about sixty 0:11:51.440 --> 0:11:54.160 eight percent of the S and P fifteen hundred sub 0:11:54.160 --> 0:11:57.800 industries trading above both their fifty and two hundred day 0:11:57.840 --> 0:12:01.240 moving averages, today that number is down to thirty eight percent. 0:12:01.400 --> 0:12:04.800 So while the market has been advancing, it's really being 0:12:04.920 --> 0:12:09.600 led by tech and to a much lesser extent, communication services. 0:12:09.840 --> 0:12:11.640 And it's been a long time since we've seen a 0:12:11.679 --> 0:12:14.280 five percent more or decline in this US stock market. 0:12:14.320 --> 0:12:16.160 It's been a long time since we've seen a two 0:12:16.200 --> 0:12:19.200 percent decline in this stock market. It is, as Bank 0:12:19.240 --> 0:12:21.960 of America wants called it, the Pavlovian urged to continue 0:12:22.000 --> 0:12:25.520 to buy because stocks keep going up? What needs to change? 0:12:25.520 --> 0:12:29.320 Because valuations alone haven't spooped investors, So what changes that 0:12:29.480 --> 0:12:31.080 allows for that sell off to happen. 0:12:32.000 --> 0:12:35.000 Sure well, we did experience a five point five percent 0:12:35.080 --> 0:12:38.240 decline from March twenty eight through April nineteenth, and we 0:12:38.360 --> 0:12:41.920 recovered everything we lost by mid May, which is not 0:12:42.040 --> 0:12:46.360 surprising because of the sixty four declines of five to 0:12:46.400 --> 0:12:48.920 ten percent since World War Two. It took us only 0:12:48.960 --> 0:12:51.080 a month and a half to get back to break even. 0:12:51.440 --> 0:12:54.560 So that's why I typically say that you're better off 0:12:54.880 --> 0:12:58.320 not allowing your emotions to drive your portfolio decisions. 0:12:58.920 --> 0:13:00.120 But as we saw last. 0:13:00.160 --> 0:13:04.120 Time, with the tenure yield creeping higher, causing investors to 0:13:04.200 --> 0:13:07.520 worry about where it would end up peaking, also the 0:13:07.720 --> 0:13:10.880 worry about the Fed not likely to cut interest rates 0:13:11.120 --> 0:13:15.920 three times, as the March dot plots had indicated. Most recently, 0:13:16.040 --> 0:13:20.400 expectations were for two. Yet I found that investory bulliance 0:13:20.600 --> 0:13:23.520 was dashed by the dots this time around, with the 0:13:23.559 --> 0:13:25.400 expectation now only being at one. 0:13:25.640 --> 0:13:28.320 So I think the question is how long will. 0:13:28.200 --> 0:13:31.960 The Fed maintain higher for longer and does that increase 0:13:32.000 --> 0:13:33.040 the risk of recession. 0:13:33.360 --> 0:13:35.880 You talk about your note this frustration by the Fed 0:13:36.120 --> 0:13:38.360 and people could have been humbling the meat loaf song 0:13:38.440 --> 0:13:40.679 two out of three am bad. What are you expecting 0:13:40.720 --> 0:13:41.040 this week? 0:13:41.080 --> 0:13:41.200 Then? 0:13:41.240 --> 0:13:42.719 From all the FEDS speak, do you expect them to 0:13:42.760 --> 0:13:45.400 be a bit more dubvish given the fact that the 0:13:45.520 --> 0:13:48.760 data potentially may mean they're going to cut before December. 0:13:49.960 --> 0:13:55.280 Well, Neil Kashkarri's comments, I think we're basically what he's 0:13:55.320 --> 0:13:57.160 been saying for a while, which is much more of 0:13:57.200 --> 0:14:01.120 a hawkish tone. Other commentary could yes, take the other 0:14:01.200 --> 0:14:04.720 side as well, because the FED wants to remind us that. 0:14:04.559 --> 0:14:06.800 They are data dependent. 0:14:07.160 --> 0:14:08.960 At the same time, I think they want to let 0:14:09.000 --> 0:14:12.520 us know that they are independent of political pressures. Every 0:14:12.760 --> 0:14:16.880 election year since nineteen ninety two except twenty twelve had 0:14:16.880 --> 0:14:19.640 the FED either raise or lower interest rates in that 0:14:19.720 --> 0:14:23.000 election year, and many times it occurred in September. So 0:14:23.640 --> 0:14:26.280 I don't think the FED would be averse to cutting 0:14:26.360 --> 0:14:28.480 rates if they felt that the data supported it. 0:14:28.960 --> 0:14:31.120 And you still think September remains in play, what's your 0:14:31.120 --> 0:14:32.200 biggest conviction for that. 0:14:33.880 --> 0:14:34.800 Well, when I look to. 0:14:34.760 --> 0:14:40.040 The CME forecast model, I see that we're looking at 0:14:40.240 --> 0:14:43.680 one third or a thirty eight percent in a sense, 0:14:44.480 --> 0:14:48.040 indicating that we're probably going to stay at that current level. 0:14:48.480 --> 0:14:52.320 But obviously sixty two percent are implying that we will 0:14:52.400 --> 0:14:55.840 probably see a cut in September of either twenty five 0:14:55.960 --> 0:14:59.120 or fifty basis points. That moves up to eighty percent 0:15:00.080 --> 0:15:03.160 for the July period and even higher for September. 0:15:03.320 --> 0:15:05.200 I'm sorry for December. 0:15:05.320 --> 0:15:07.920 So I would tend to say that the chances are 0:15:08.120 --> 0:15:11.640 increasing that we do end up seeing a cut of 0:15:11.680 --> 0:15:15.120 sometime this year. Would possibly two still on the table, Sam, 0:15:15.160 --> 0:15:15.360 A lot. 0:15:15.320 --> 0:15:17.240 Of people would agree with you. Last week we saw 0:15:17.360 --> 0:15:19.840 a massive rally in US government dead I'm looking at 0:15:19.840 --> 0:15:22.720 a twenty one basis point decline in ten your yields 0:15:22.720 --> 0:15:25.840 down to four point two two percent to end the week. 0:15:26.120 --> 0:15:29.320 Why is Why is that not igniting a rally? And 0:15:29.400 --> 0:15:32.480 some aspects of the risk market that have not participated. 0:15:32.480 --> 0:15:34.200 I'm thinking of small caps in particular. 0:15:35.400 --> 0:15:36.680 Well, I think, first off. 0:15:36.560 --> 0:15:39.840 The reason that one reason why the yields have been 0:15:39.880 --> 0:15:42.600 coming down is because the prices have been going up 0:15:42.640 --> 0:15:45.880 because interest rates look more attractive here in the US 0:15:45.920 --> 0:15:50.560 than an overseas, so that's attracting foreign investors. We certainly 0:15:50.600 --> 0:15:53.040 are looking at small caps now trading at a thirty 0:15:53.080 --> 0:15:56.600 one percent discount on a relative pe basis, mid caps 0:15:56.600 --> 0:15:59.880 at twenty five percent discount. I think it's because in 0:16:00.000 --> 0:16:03.240 investors want to wait until the FED does actually cut 0:16:03.320 --> 0:16:06.320 rates because of the potential of a rising risk of 0:16:06.400 --> 0:16:09.440 recession sends. These smaller and mid cap firms are the 0:16:09.440 --> 0:16:11.800 ones that will take it on the chin more so 0:16:11.880 --> 0:16:15.200 than large caps should we end up having something deeper 0:16:15.200 --> 0:16:16.840 than simply soft landing. 0:16:17.000 --> 0:16:19.400 So I think investors. 0:16:19.000 --> 0:16:21.200 Are playing it close to the vest at this point 0:16:21.560 --> 0:16:25.840 and focusing almost exclusively on the larger cap growth universe. 0:16:26.080 --> 0:16:39.040 Sam Stoveball of CFURI, thank you so much. Right now, 0:16:39.080 --> 0:16:41.040 we want to dive into what to expect to the 0:16:41.040 --> 0:16:43.320 remainder of the year and whether the balance of risks has. 0:16:43.240 --> 0:16:44.800 Shifted as we do. 0:16:44.720 --> 0:16:47.920 See a disinflationary tilt to more of the data, at 0:16:47.960 --> 0:16:50.800 least in the United States showing US now Stephen Major 0:16:50.800 --> 0:16:55.440 of HSBC and Lydia Burssor of EY both with US. Lydia, 0:16:55.440 --> 0:16:57.680 I want to start with you in terms of what 0:16:57.800 --> 0:16:59.880 you make over the rally that we've seen in bonds 0:17:00.160 --> 0:17:03.280 the last couple of weeks in particular, and what this 0:17:03.480 --> 0:17:06.159 signals about where the balance of risk is at a 0:17:06.200 --> 0:17:08.520 time with the Fed kind of had a hockey is 0:17:08.520 --> 0:17:09.359 still last week. 0:17:10.880 --> 0:17:14.840 Yeah, so we've seen softening in economic data, and I 0:17:14.880 --> 0:17:18.600 think that the narrative has been shifting towards the economy 0:17:18.640 --> 0:17:22.280 is slowing more than what was you know, anticipated earlier 0:17:22.280 --> 0:17:25.440 this year when inflation is surprised on the outside. So 0:17:25.520 --> 0:17:27.720 what we're seeing in terms of the economy is a 0:17:27.760 --> 0:17:32.040 gradual slow down in economic activity. The Fed, you know, 0:17:32.160 --> 0:17:35.800 last week was you know, somewhat you know, slightly more 0:17:35.800 --> 0:17:38.680 hockey than expected coming out of this meeting. There is 0:17:38.760 --> 0:17:42.119 really the sense that they have lost some conviction that 0:17:42.320 --> 0:17:46.400 inflation is moving back sustainably towards the two percon targets. 0:17:46.400 --> 0:17:48.840 So now when we look at you know, the next 0:17:48.880 --> 0:17:52.720 couple of months and the coming data that we were discussing, 0:17:53.000 --> 0:17:56.160 it's all going to be about rebuilding that confidence seeing 0:17:56.400 --> 0:18:00.520 less that softening and sequential inflation, but also seeing some 0:18:00.560 --> 0:18:03.080 stuffening in the label market for the Fed to be 0:18:03.119 --> 0:18:05.199 confident enough to start cutting interest rates. 0:18:05.280 --> 0:18:07.439 Stephen, what did you make of last week considering that 0:18:07.480 --> 0:18:09.919 we saw a harkish tilt to the Fed and you 0:18:10.080 --> 0:18:13.560 just reconfirmed in your media outlook a belief in a 0:18:13.640 --> 0:18:16.440 rip boring rally in US government bonds. They could potentially 0:18:16.520 --> 0:18:18.320 take the ten ure YEARLDS three and a half percent. 0:18:19.720 --> 0:18:24.520 Yeah, I'm quite glad we kept the bullish conviction. I mean, 0:18:24.600 --> 0:18:27.560 the news flow coming through on the back of these 0:18:27.760 --> 0:18:31.280 elections that you were talking about in the prelude to 0:18:31.359 --> 0:18:34.280 this interview, I think that really matters, and I think 0:18:34.320 --> 0:18:38.919 it kind of overwhelms the impact of these CPI and 0:18:38.960 --> 0:18:43.199 payrolls releases and the FED speak. So I think it 0:18:43.400 --> 0:18:47.560 was yourself or Danity that spoke about chaos. 0:18:47.400 --> 0:18:50.320 And you both mentioned France and Mexico. 0:18:51.280 --> 0:18:54.719 There's a lot of commonality here that these are spread 0:18:54.840 --> 0:18:59.400 markets that have a lot of overseas or non resident 0:19:00.440 --> 0:19:04.440 behind them, and they don't respond well to volatility shocks. 0:19:04.600 --> 0:19:07.680 In this case, you've had election results that have brought 0:19:07.720 --> 0:19:12.120 the fiscal challenges back into focus and bonds don't like that. 0:19:12.520 --> 0:19:15.000 So if you're get a flight to quality, people moved 0:19:15.000 --> 0:19:17.600 from French bonds to German bonds, from Mexican bonds to 0:19:17.720 --> 0:19:23.199 US bonds, and globally it's all knocking on, and I 0:19:23.200 --> 0:19:25.800 think you've got an unwind going on of all these 0:19:25.840 --> 0:19:29.120 carry trades. So at a time of type credit spreads 0:19:29.800 --> 0:19:32.360 and a bit of a bowl shock, it's no surprise 0:19:32.480 --> 0:19:33.879 that treasuries are doing quite well. 0:19:35.000 --> 0:19:38.240 Even though what happens when all of that meets us 0:19:38.240 --> 0:19:41.679 political instability? If we do see something in November that 0:19:41.720 --> 0:19:45.520 looks like uncertainty about the results, confusion about the results, 0:19:45.600 --> 0:19:48.280 confusion about the policy, where does that money go? 0:19:49.400 --> 0:19:51.720 Yeah, I guess at the start of the year everyone 0:19:51.880 --> 0:19:54.040 was focused on how many elections they were going to 0:19:54.080 --> 0:19:57.560 be this year. It's taken to the halfway point Delhi 0:19:57.960 --> 0:20:01.280 for there to be a significant shot, because, I mean, 0:20:01.320 --> 0:20:04.400 the Indian result wasn't a big shock in a way, 0:20:04.520 --> 0:20:06.560 and it is a very domestic market. 0:20:06.920 --> 0:20:09.719 The reason Mexico and France matter is because they're so international. 0:20:10.000 --> 0:20:12.520 So the US election is still a long way away, 0:20:13.119 --> 0:20:18.119 and I think everyone who's watching this show knows that 0:20:18.119 --> 0:20:20.439 there's a lot of debt, and they know what the 0:20:20.440 --> 0:20:26.639 policies are of the two presumed candidates, so it's not 0:20:26.760 --> 0:20:29.919 like a big unknown out there. It seems to me 0:20:30.000 --> 0:20:33.639 that part of the reason that data is cooling is 0:20:33.640 --> 0:20:36.960 because the fiscal impulse is starting to fade. And I 0:20:37.000 --> 0:20:39.760 think all of us should just recognize whoever's the president 0:20:39.880 --> 0:20:42.919 in twenty twenty five is going to have double the 0:20:42.960 --> 0:20:45.320 death stock of eight years ago. 0:20:45.800 --> 0:20:49.439 So whoever's there is going to be somehow. 0:20:50.760 --> 0:20:54.560 Restricted in what can be done in terms of future 0:20:54.600 --> 0:20:57.760 fiscal loosening. I didn't think the US, by the way, 0:20:58.040 --> 0:21:02.320 is in that bad shape fiscally. I'm talking here about 0:21:02.480 --> 0:21:06.080 relative to other countries and considering the asset base. 0:21:06.760 --> 0:21:09.680 The growth of GDP has been has really helped. 0:21:10.480 --> 0:21:12.600 But of course if the economy is cooling and the 0:21:12.640 --> 0:21:13.879 debt keeps going up. 0:21:14.160 --> 0:21:15.560